Is Bitfinex Lending Safe? The Risks Lenders Actually Face

Bitfinex's own documentation is clear that providing funding is not risk-free. Rates above what a bank pays come with the risks below. For each one, here's what you can do to reduce it.

Something happens to the exchange

Your money is on Bitfinex. If Bitfinex runs into trouble, you're affected, and that includes money that's lent out.

In August 2016, Bitfinex was hacked and 119,756 bitcoin were stolen. Afterwards, every customer balance was cut by 36%, including accounts that weren't breached, and the difference was paid out in BFX tokens. In April 2017, Bitfinex redeemed all BFX tokens at 1 USD each.

The way to limit this is simple: only lend an amount you're comfortable keeping on a single exchange.

Borrowers losing more than their margin

The borrowers are leveraged traders. Their losses come out of their margin wallet first, and when their equity falls below the maintenance margin, the position is liquidated.

Bitfinex's documentation says that if the market moves too fast for liquidations to fill, Bitfinex absorbs the losses up to a point. But if prices move so violently that most margin positions go negative, lenders ultimately share the loss. The same documentation notes this has never happened in Bitfinex's history.

It's a low-probability, high-impact risk, and not one a lender can control.

Rate changes

Rates are set by the market. In quiet periods, USD lending can drop to a single-digit APR.

What's easier to overlook is that the terms aren't symmetric. Borrowers can repay early at any time, and Bitfinex's documentation notes they can close existing loans to take better rates. Once you've lent at a fixed rate, all you can do is wait for the borrower to repay or the term to end, however high the market goes. The result: when rates fall, your high-rate loans tend to come back, and when rates rise, your low-rate loans tend to stay out.

A leaked API key

Using a lending tool means creating an API key. What someone could do with a leaked key depends on the permissions you gave it, so always keep withdrawals off; lending only needs read and funding permissions. Turn on two-factor authentication for your account, and delete keys you no longer use.

Your lending tool shutting down

A tool that shuts down doesn't take your money with it. Active loans run to their original term, and principal plus interest return to your funding wallet. The risk comes afterwards: nobody offers the money again, so it sits idle. For what to look for in a tool, see How to choose a Bitfinex lending bot.

USDT or USD

USDT is a stablecoin issued by Tether, so lending USDT adds the risk of it losing its dollar peg. USD doesn't carry that extra layer. The exchange risk is the same for both.